I’ve said it before and I’ll say it again: outsourcing your IT, whether some or all, requires regular review, oversight, and re-evaluation. There’s numerous reasons as to why that is, but here’s one specific reason: realizing the deal has successfully run its course.
In that spirit, I want to applaud Kellwood, an apparel maker who, by keeping close tabs on its 13-year outsourcing agreement with EDS (now HP Enteprise Services), decided it was time to end that relationship. You can read about the specifics of the deal, or end of the deal as it were, in this great article by CIO.com contributor Stephanie Overby. But in a nutshell, Kellwood had gone through some significant business changes, and in order to meet the new financial and process demands and develop an even more IT shop that was even more flexible, running IT in-house made the most sense. The kicker is that Kellwood has since saved a lot by insourcing—an impressive $3.6 million, or about 17 percent of annual IT expenses, according to Linda Kinder, Kellwood’s CIO.
So I wanted to spend a few minutes focusing on the ways Kellwood got it right.
First off, Kellwood kept on top of its contract with EDS from the get-go. Initially, the apparel manufacturer signed a full IT outsourcing agreement with EDS in 1996. But as its needs changed, Kellwood renegotiated. The most recent iteration, inked in 2008, called for EDS to manage Kellwood’s IT infrastructure and provide some services offshore. And according to the article, that deal had more flexibility built in. It not only asked EDS to relate IT services directly to business processes, the deal included a new process designed to foster collaboration and innovation between EDS and Kellwood.
A year later, however, intense consolidation efforts initiated by new owners and designed to create some much-needed solvency meant outsourcing may no longer be an option.
Once again, Kellwood did its due diligence. Rather than simply end the contract and begin insourcing, Kinder and her team decided to bring in a fresh set of eyes—a third party outsourcing consultant—to evaluate Kellwood’s situation. The consultant spent weeks looking at everything from Kellwood’s market position to different options such as once again re-negotiating the deal with EDS.
Ultimately, the analysis led Kellwood to believe that it would save more money by insourcing, and that by bringing it all back home, Kellwood would be able to more quickly respond to any changes, whether caused by market or internal forces. And that those responses wouldn’t require re-negotiations of any IT agreements.
Kellwood then took its time. It developed a thorough plan that considered all top-level aspects of an IT shop. It was almost like starting from scratch. While outsourcing with EDS continued, a new IT organization was formed, new IT processes were defined and standards, and metrics were established.
And in a move that probably many companies would miss, Kellwood kept the lines of communication open with EDS and its own employees, and found a way to offer most of the EDS professionals positions within the newly developed IT group.
Bottom line: Even though Kellwood had outsourced its IT operations, Kellwood did its IT work. The company regularly evaluated its outsourcing agreement and its outsourcing needs and made well-researched and well-thought adjustments as needed. I’m pretty sure that work ethic will drive its newly formed, in-house IT department.